Chancellor George Osborne has abolished the “slab” structure of stamp duty and replaced it with a system more akin to income tax.
Giving his annual Autumn Statement last week, Osborne promised the “complete reform of a tax that has been described as one of our worst-designed and most damaging of all taxes”.
He added: “I am… abolishing the residential slab system altogether. In future each rate will only apply to the part of the property price that falls within that band – like income tax.”
Under the current regime, buyers pay 1 per cent stamp duty on properties worth more than £125,000, 3 per cent above £250,000 and 4 per cent above £500,000. For homes worth more than £1m, buyers pay 5 per cent and 7 per cent on properties worth £2m or more.
Under the new structure, which came into effect on Thursday, buyers pay no tax up to the first £125,000, 2 per cent on the portion up to £250,000, 5 per cent up to £925,000, 10 per cent up to £1.5m and 12 per cent for anything over that.
Osborne claimed that 98 per cent of buyers will pay less under the new structure in a tax cut worth £800m a year. On the day of the announcement, buyers who had exchanged contracts but not completed could choose which system to opt for.
In October, Scotland announced plans to ditch slab structure from April in favour of a more progressive system. The changes will apply in Scotland until the Scottish government’s new regime comes into effect in April.
Building Societies Association head of mortgage policy Paul Broadhead says: “This is the year the Chancellor has pulled a real rabbit out of the hat and gone for it on stamp duty. A progressive system of taxation for home purchase is far fairer. It will help individuals and families buy their own home, and smooth out the crazy tax jumps buyers have suffered around the top of each band.
“We have been calling for this reform for years and the best I was hoping for was a consultation… The single disappointment was the opportunity to raise the bottom £125,000 band up at least in line with inflation was not taken. That said, buyers, whether first-timers or families moving into a larger home, will benefit.”